A New Robotic Welder Can Be Leased for 3 Years

question 46

Multiple Choice

A new robotic welder can be leased for 3 years with annual payments of $225,000 with the first payment occurring at lease inception.The system would cost $850,000 to buy and would be depreciated straightline to a zero salvage value over five years.The actual salvage value is expected to be $65,000 at the end of the five years.The firm can borrow at 8 percent and has a tax rate of 21 percent.What is the Year 0 incremental cash flow from leasing instead of buying?

• A)$1,027,750
• B)$695,000
• C)$672,250
• D)$748,500
• E)$684,750

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